Ally Financial, Inc., and Ally Bank v. Alabama Department of Revenue

Rel: April 10, 2026

Notice: This opinion is subject to formal revision before publication in the advance sheets of Southern Reporter.
Readers are requested to notify the Reporter of Decisions, Alabama Appellate Courts, 300 Dexter Avenue,
Montgomery, Alabama 36104-3741 ((334) 229-0650), of any typographical or other errors, in order that corrections
may be made before the opinion is published in Southern Reporter.

ALABAMA COURT OF CIVIL APPEALS
OCTOBER TERM, 2025-2026
_________________________

CL-2025-0460
_________________________

Ally Financial, Inc., and Ally Bank

v.

Alabama Department of Revenue

Appeal from Montgomery Circuit Court
(CV-24-900997)

EDWARDS, Judge.

This appeal concerns whether Ally Financial, Inc. ("AFI"), and Ally

Bank ("the bank") (collectively referred to as "the taxpayers") met the

criteria to file Alabama Financial Institution Excise Tax ("FIET") returns
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as a consolidated group in tax return years 2012 through 2020,1 pursuant

to Ala. Code 1975, § 40-16-3(c). The Alabama Department of Revenue

("the Department") determined that the taxpayers were not eligible to

file as a consolidated group for those tax return years, resulting in

additional tax liability owed by the bank for tax return years 2012

through 2018 and the denial of refunds for tax return years 2019 and

2020. The taxpayers timely appealed to the Alabama Tax Tribunal ("the

tax tribunal"), which upheld the Department's determination that the

taxpayers failed to meet the requirements necessary to file a consolidated

return in the tax return years at issue. The taxpayers timely appealed

the decision of the tax tribunal to the Montgomery Circuit Court ("the

circuit court"). By consent of the parties, the circuit court's review was

upon the administrative record and transcript developed before the tax

tribunal. The circuit court affirmed the decision of the tax tribunal. The

1All references to "tax return years" are to the calendar year in

which the FIET return was required to be filed pursuant to Ala. Code
1975, § 40-16-3(a). The FIET return for each tax return year reports the
tax based on net income from the prior taxable year. For example, an
FIET return for the 2012 tax return year reports the tax based on net
income from the tax year ending December 31, 2011.
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taxpayers now appeal the judgment of the circuit court. For the reasons

set forth below, we affirm.

Alabama law requires every financial institution, as that term is

defined in Ala. Code 1975, § 40-16-1, to file an FIET return. § 40-16-3(a).

Section 40-16-3(b) permits "qualified corporate groups" to file a single

consolidated FIET return on behalf of the entire consolidated group.

Filing on a consolidated basis allows certain losses, if any, to be allocated

across the consolidated group, effectively offsetting income of the

members of the group. Allocating losses in a consolidated return allows

a parent and its subsidiaries in the group to offset one member's losses

against another member's profits, thereby reducing the group's overall

taxable income and allowing the immediate use of net operating losses.

To be included in a consolidated group for purposes of filing an FIET

return, a financial institution must satisfy both the ownership test and

the filing test set forth in § 40-16-3(c)(1) and (2).

In addition, financial institutions electing to file a consolidated

FIET return are required to file certain forms with the Department.

Relevant to this appeal, all members of a consolidated group must

complete Form ET-1C, the common parent of the consolidated filing
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group must file a Form ET-C, and each member participating in the

consolidated filing must complete a pro forma Form ET-1 that is attached

to Form ET-1C. Ala. Admin. Code (Dep't of Revenue), r. 810-9-1-

.02(5)(a)2.

The relevant facts in this case appear to be largely undisputed.2

The bank was formed under the laws of Utah and is registered to do

business in Alabama. The bank is wholly owned by IB Finance Holding

Company, LLC ("IBF"), a Delaware limited-liability company that is

headquartered in Michigan. IBF, in turn, is wholly owned by AFI, a

Delaware corporation that is also headquartered in Michigan. AFI and

IBF are registered bank-holding companies under the Bank Holding

Company Act of 1956. 12 U.S.C. § 1841. For tax return years 2012

through 2018, AFI filed consolidated FIET returns and completed Form

ET-1C, listing the bank and AFI, among other entities not relevant to

this appeal, as members of the consolidated group.3 Despite the fact that

2The parties filed a joint stipulation of facts in the tax tribunal.

3Those returns included various disregarded entities that do
business in Alabama that were not treated as separate entities of AFI for
tax purposes.
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the bank was wholly owned by IBF, IBF was not included in those FIET

returns and was not included in AFI's Form ET-1C, Form ET-1, or any

other form.4

In 2017, the Department conducted a review of the taxpayers'

returns and made adjustments that are not relevant to this appeal. The

taxpayers requested a hearing with the Department to contest the

adjustments. During that hearing, the Department learned that IBF,

and not AFI, was the sole owner of the bank. Based on that knowledge,

the Department determined that AFI and the bank did not meet the

requirements for filing as a consolidated group because they could not

meet the ownership test and the filing test. Specifically, the Department

determined that AFI was not the parent of the bank because it had no

direct ownership of the bank; consequently, the ownership test set forth

in § 40-16-3(c) was not met. Ultimately, the Department recalculated the

tax liabilities of AFI and the bank on a separate-entity basis. As a result,

4For the 2017 and 2018 tax return years, AFI filed a consolidated

return listing for the first time AFI, IBF, and the bank in the consolidated
group. However, the returns did not include a Form ET-1 for IBF or any
tax attributes of IBF in the affiliation schedule. It is undisputed that
those forms were required to properly include IBF in the group.
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the net operating losses of AFI were available to it only on a separate-

entity basis, effectively preventing AFI from allocating a portion of its

losses to offset the bank's taxable income. The adjustments resulted in

additional tax being owed by the bank in each of the tax return years.

Regarding tax return years 2012 through 2016, the resulting tax

deficiencies were not assessed due to a statute-of-limitations issue

resolved in favor of the bank; thus, no tax assessments were entered by

the Department against the bank for those years. The Department

issued preliminary assessments against the bank for tax return years

2017 and 2018 on October 13, 2020. Following a hearing on the

taxpayers' appeal of the preliminary assessments, on February 24, 2021,

the Department entered final assessments against the bank for taxes due

in the amounts of $1,480,530 and $2,187,951, respectively, plus interest

and penalties. As noted, the taxpayers timely appealed the Department's

adjustments and final assessments to the tax tribunal.

On or about October 15, 2019, AFI filed a consolidated FIET return

for the 2019 tax return year, listing AFI, IBF and the bank as members

of the consolidated group. That return included, for the first time, a Form

ET-1 for IBF. The return indicated that IBF had approximately $16.2
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billion in assets and a comparatively small amount of loss, none of which

was apportioned to Alabama. It appears that the parties agree that IBF

had no nexus with Alabama during the relevant return years. AFI did

not apportion any income or loss to IBF on the consolidated return. The

return reported zero tax liability for the bank. The taxpayers then filed

a petition for a refund, seeking the refund of a $1.2 million estimated tax

payment that had been previously paid to the Department for the 2019

tax return year.

For the 2020 tax return year, AFI filed a consolidated FIET return

similar to the 2019 return, reporting zero tax liability for the bank. The

taxpayers then filed a petition for a refund, seeking the return of a

$900,000 estimated tax payment that had been previously paid to the

Department for the 2020 tax return year. Both refund requests were

denied by operation of law. Ala. Code 1975, § 40-2A-7(c)(3).

The taxpayers timely appealed the Department's adjustments, the

final assessments, and the denial of the requested refunds to the tax

tribunal. Those appeals were consolidated, and a trial on the merits was

conducted. On May 13, 2024, the tax tribunal entered a final order

resolving all issues in the consolidated appeals in favor of the
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Department. The tax tribunal found that the proposed consolidated

group consisting of AFI and the bank in tax return years 2012 through

2018, and the proposed consolidated group consisting of the taxpayers

and IBF in the tax return years 2019 and 2020, did not meet the

requirements set forth in § 40-16-3 to file consolidated FIET returns. The

taxpayers filed an application for a rehearing in the tax tribunal. The

tax tribunal denied the taxpayers' application for a rehearing on May 29,

2024.5

In June 2024, the taxpayers appealed the tax tribunal's decision to

the circuit court. The circuit court's review of the tax tribunal's decision

was, by the parties' consent, limited to the record made in the tax

tribunal; the burden rested on the taxpayers to demonstrate that the tax

tribunal's decision was incorrect. Ala. Code 1975, § 40-2B-2(m)(4). The

circuit court heard arguments of the parties at a hearing in February

2025. At that hearing, the taxpayers reasserted that the Department's

5The circuit court's judgment indicates that the taxpayers paid the

final assessments, along with any accrued interest, after the tax
tribunal's decision was final in order to perfect their appeal to the circuit
court.

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interpretation of § 40-16-3 was incorrect and argued, for the first time,

that the Department's interpretation of § 40-16-3 was invalid under the

Commerce Clause of the United States Constitution. U.S. Const., Art. I,

§ 8, cl. 3.

In May 2025, the circuit court entered a detailed judgment finding,

as had the tax tribunal, that the proposed consolidated groups were

invalid because the groups failed either the ownership test or the filing

test for each year in the tax return years at issue.6 The circuit court

explained that the omission of IBF for the tax return years between 2012

and 2018 resulted in the proposed consolidated group failing the

ownership test. The circuit court determined that, once IBF was included

in the consolidated FIET returns for tax return years 2019 and 2020, the

group failed the filing test because IBF was not a financial institution

that was required to file an FIET return. The taxpayers timely appealed

the circuit court's judgment.

6Although the circuit court's judgment did not expressly address the

taxpayers' Commerce Clause argument, the circuit court's adoption of the
Department's interpretation of Ala. Code 1975, § 40-16-3, and its
affirmance of the tax tribunal's decision functions as an implicit denial of
that argument.
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The primary issue before this court is whether the circuit court

erred in affirming the tax tribunal's decision that the proposed

consolidated groups failed to satisfy the requirements in § 40-16-3(c). In

addition, the taxpayers assert that the circuit court's interpretation of

the filing test violates the Commerce Clause of the United States

Constitution. U.S. Const., Art. I, § 8, cl. 3. Because the only questions

presented on appeal are questions of law, and the facts are undisputed,

our review is de novo. State Dep't of Revenue v. Garner, 812 So. 2d 380,

382 (Ala. Civ. App. 2001). We begin by observing that § 40-16-3(c) was

amended by Ala. Acts 2019, Act No. 19-284; those amendments took

effect on January 1, 2020. Therefore, we are bound to construe the

language of § 40-16-3 as it existed at the time the relevant FIET returns

were filed.7

The ownership test in effect at the time of the FIET returns at issue

were filed provided that

"[i]ncludable financial institutions will be connected through
stock ownership with a common parent corporation,
which financial institutions are includable corporations if:

7The parties appear to agree that the preamendment version of ala.

Code 1975, § 40-16-3(c), is the operative version of the statute for this
appeal.
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"a. Stock possessing at least 80 percent of the
voting power of all classes of stock and at least 80
percent of each class of the nonvoting stock of each
of the includable corporations (except the common
parent corporation) is owned directly by one or
more of the other includable corporations; and

"b. The common parent owns directly stock
possessing at least 80 percent of the voting power
of all classes of stock and at least 80 percent of
each class of the nonvoting stock of at least one of
the other includable corporations."

§ 40-16-3(c)(1) (emphasis added).

The filing test in effect during that same period provided that, "[i]n

order to be eligible for this election, each member must be a financial

institution as defined in [Ala. Code 1975, §] 40-16-1[,] and be required to

file an excise tax return." § 40-16-3(c)(2). Section 40-16-1 defined a

"financial institution" as

"[a]ny person, firm, corporation and any legal entity
whatsoever doing business in this state as a national banking
association, bank, banking association, trust company,
industrial or other loan company or building and loan
association, and such term shall likewise include any other
institution or person employing moneyed capital coming into
competition with the business of national banks, and shall
apply to such person or institution regardless of what
business form and whether or not incorporated, whether of
issue or not, and by whatsoever authority existing. The
common parent corporation of a controlled group of
corporations eligible to elect to file a consolidated excise tax
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return, in accordance with Section 40-16-3, shall be
considered a financial institution if such parent corporation is
a registered bank holding company as defined by the Bank
Holding Company Act of 1956, as amended."

A plain language reading of the statute compels us to hold that, in order

to have been a member of the consolidated FIET-return group, IBF must

have been an includable financial institution and must have satisfied the

ownership test and the filing test for each of the FIET tax return years

at issue.

We first consider the 2012 through 2018 tax return years. It is clear

from the record that IBF failed to complete a Form ET-1 for those tax

return years. The taxpayers contend that IBF's failure to complete that

form is irrelevant to these proceedings because, they say, IBF did not

have any income or losses apportioned to Alabama for those years.

However, r. 810-9-1-.02(5)(a)3(iii) requires "each member participating

in the consolidation" to file a Form ET-1. Accordingly, regardless of

whether IBF was eligible to be included in the consolidated group, the

acknowledged failure to attach IBF's Form ET-1 to the consolidated FIET

return resulted in IBF's exclusion from the consolidated group.

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The circuit court concluded that the absence of IBF from the

consolidated group prevented the proposed consolidated group from

satisfying the ownership test because AFI did not directly own at least

80% of at least one other includable corporation and the bank.

Specifically, the circuit court concluded that the only two affiliated

members on the consolidated FIET returns were AFI and the bank and

that AFI did not directly own the bank. The circuit court rejected the

taxpayers' argument that the ownership test is met when each of the

includable corporations in the group is owned by one or more of the other

members of the group, concluding that such an interpretation would

render the term "directly" to be either meaningless or equivalent to the

term "indirectly." Recognizing, as the circuit court did, that "courts must

presume that … the legislature intended that each word of the statue

have effect, and … that the legislature did not include meaningless

language or redundancies in the statute," Surtees v. VFJ Ventures, Inc.,

8 So. 3d 950, 975 (Ala. Civ. App. 2008), we conclude that the circuit court

correctly determined that the proposed consolidated group was not

eligible to file FIET returns on a consolidated basis for the 2012 through

2018 tax return years because the ownership test was not met.
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Turning to the 2019 and 2020 tax return years, the record clearly

indicates that IBF filed the appropriate forms to be included in the

consolidated FIET return. To meet the filing test, each member of the

consolidated group must have been both a "financial institution" and

"required to file an [Alabama] excise tax return." § 40-16-3(c)(2). First,

we must consider whether IBF is a financial institution. Initially, we

note that the parties appear to agree that IBF does not do business in

Alabama and, therefore, cannot qualify as a financial institution under

the first sentence of § 40-16-1 ("the business test") (defining a "financial

institution," in pertinent part, as "[a]ny person, firm, corporation and any

legal entity whatsoever doing business in this state as a national banking

association, bank, banking association, trust company, industrial or

other loan company or building and loan association"). However, the

taxpayers assert that IBF qualifies as a financial institution under the

second sentence of § 40-16-1 ("the common-parent test") because, they

say, it is a registered bank-holding company and is "the common parent

of a group of corporations eligible to file a consolidated excise tax return

(an eligible group composed of [IBF] and [the bank])." Taxpayers' brief,

p. 24. The Department argues that IBF is not a financial institution
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because IBF would not be "the common parent" of the proposed

consolidated group of AFI, IBF, and the bank; in other words, because

AFI wholly owns IBF and IBF wholly owns the bank, IBF cannot be the

common parent of the group including AFI and the bank. The taxpayers

appear to acknowledge that IBF is not the common parent of the proposed

consolidated group.

We observe that the taxpayers' interpretation of the common-

parent test would permit any registered bank-holding company that

owns at least 80% percent of the voting and nonvoting shares of an entity

satisfying the business test to be a common parent, and thus a financial

institution, for the purpose of filing a consolidated FIET return,

regardless of that parent corporation's connection to Alabama. Such an

interpretation of the common-parent test would effectively render the

filing test obsolete. We emphasize that " ' "[t]here is a presumption that

every word, sentence, or provision [of a statute] was intended for some

useful purpose, has some force and effect, and that some effect is to be

given to each, and also that no superfluous words or provisions were

used." ' " Richardson v. Stanford Props., LLC, 897 So. 2d 1052, 1058 (Ala.

2004) (quoting Sheffield v. State, 708 So. 2d 899, 909 (Ala. Crim. App.
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1997), quoting in turn 82 C.J.S. Statutes § 316, at 551-52 (1953)). The

plain language of the ownership test and the common-parent test clearly

contemplate a single common parent for a given consolidated group. The

ownership test provides, in part, that each includable corporation,

"except for the common parent corporation," must have 80% of its voting

and nonvoting stock owned by one or more of the other includable

corporations. § 40-16-3(c)(1)(a) (emphasis added). The common-parent

test similarly refers to "[t]he common parent corporation" of a group of

corporations that are eligible to file a consolidated FIET return. § 40-16-

1. Thus, it appears that the legislature contemplated that the term

"common parent" applies to only the common parent of the proposed

consolidated group at issue, which, in this case, is AFI. It follows that,

because IBF is not the common parent of the consolidated return group

and does not do business in Alabama as a bank or similar entity, it does

not qualify as a financial institution and is not required to file an FIET

return. Accordingly, we agree with the circuit court that the proposed

consolidated group of AFI, IBF, and the bank failed the filing test for the

2019 and 2020 tax return years. Therefore, we affirm the circuit court's

judgment as to those tax return years.
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The taxpayers next contend that the circuit court's interpretation

of the filing test expressly favors in-state business operations and, thus,

they say, violates the Commerce Clause of the United States

Constitution.

"The Commerce Clause of the United States Constitution
states that '[t]he Congress shall have power ... [t]o regulate
commerce ... among the several states….' U.S. Const., Art. I,
§ 8, cl. 3. Notably absent from this text is any explicit
prohibition on state regulation of interstate commercial
activity. Nonetheless, the United States Supreme Court, in
what is referred to as its 'dormant' or 'negative' Commerce
Clause jurisprudence, has concluded that such a
constitutional principle exists. 'The negative or dormant
implication of the Commerce Clause prohibits state taxation
... or regulation ... that discriminates against or unduly
burdens interstate commerce and thereby "imped[es] free
private trade in the national marketplace." ' General Motors
Corp. v. Tracy, 519 U.S. 278, 287, 117 S. Ct. 811, 136 L. Ed.
2d 761 (1997) (quoting Reeves, Inc. v. Stake, 447 U.S. 429,
437, 100 S. Ct. 2271, 65 L. Ed. 2d 244 (1980))."

Ex parte Hoover, Inc., 956 So. 2d 1149, 1150 (Ala. 2006). We note that

appellate courts presume that a properly enacted statute is

constitutional and, when there are two possible interpretations of a

statute, will employ the interpretation that renders the statute

constitutional. Surtees, 8 So. 3d at 976-77. However, "[w]e note that

because we are concerned with construing statutory provisions, we

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review this case without attaching any presumption of correctness to the

actions of the trial court." Pilgrim v. Gregory, 594 So. 2d 114, 120 (Ala.

Civ. App. 1991) (opinion on application for rehearing). See also IEC Arab

Alabama, Inc. v. City of Arab, 7 So. 3d 370, 373 (Ala. Civ. App. 2008);

Monroe v. Valhalla Cemetery Co., 749 So. 2d 470, 471-72 (Ala. Civ. App.

1999).

In Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977),

the United States Supreme Court provided that a state tax on interstate

commerce will be sustained so long as it "[(1)] applie[s] to an activity with

a substantial nexus with the taxing State, [(2)] is fairly apportioned, [(3)]

does not discriminate against interstate commerce, and [(4)] is fairly

related to the services [the State provides]." A tax may discriminate

against interstate commerce by being facially discriminatory, having a

discriminatory intent, or having the effect of unduly burdening interstate

commerce. Amerada Hess Corp. v. Director, Div. of Tax'n, New Jersey

Dep't of Treasury, 490 U.S. 66, 75 (1989).

Initially, we note that the taxpayers appear to argue, at least in

part, that the filing test is facially discriminatory; that is, the plain text

of the filing test, they say, expressly discriminates against out-of-state
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commerce. Healy v. Beer Inst., Inc., 491 U.S. 324, 341 (1989) (holding

that a Connecticut statute that "[b]y its plain terms ... applie[d] solely to

interstate brewers or shippers of beer, that is, either Connecticut brewers

who sell both in Connecticut and in at least one border State or out-of-

state shippers who sell both in Connecticut and in at least one border

State" facially discriminated against interstate commerce); Amerada

Hess, 490 U.S. at 67 (concluding that an add-back provision in the state's

taxing statutes was not facially discriminatory because there was no

explicit discriminatory design to the tax); AT & T Corp. v. Surtees, 953

So. 2d 1240, 1245 (Ala. Civ. App. 2006) (explaining that, in order to

determine whether a statute is facially discriminatory, "the text of the

statute must treat in-state economic interests differently from out-of-

state economic interests in such a way as to benefit the in-state economic

interests and burden the out-of-state economic interests"); see Camps

Newfound/Owatonna, Inc. v. Town of Harrison, 520 U.S. 564 (1997)

(stating that a facially discriminatory law textually identifies out-of-state

person or entities and grants them unfavorable treatment). Certainly, a

statute that expressly favors in-state commerce over out-of-state

commerce would be facially discriminatory and a per se violation of the
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Commerce Clause. Fulton Corp. v. Faulkner, 516 U.S. 325, 331 (1996).

However, unlike the statute at issue in Boston Stock Exchange v. State

Tax Commission, 429 U.S. 318 (1977), the case the taxpayers primarily

rely on before this court, the filing test does not expressly provide for

different treatment for in-state commerce and out-of-state commerce.

The filing test requirement that an entity be a financial institution that

is required to file an FIET return does not, on its face, discriminate

against interstate commerce. Thus, we disagree that the circuit court's

interpretation of the filing test is per se invalid.

The taxpayers also assert that the circuit court's interpretation of

the filing test discriminates against interstate commerce by preventing

out-of-state intermediate bank-holding companies that do not conduct

business in Alabama, such as IBF, from qualifying as financial

institutions for the purpose of being a member of a consolidated FIET-

return group. The taxpayers cite General Motors Corp. v. Director of

Revenue, 981 S.W.2d 561 (Mo. 1998), in support of their argument. In

that case, the Missouri Supreme Court overturned a state statute that,

on its face, conditioned consolidated filing privileges on the group's

deriving 50% or more of its income from Missouri sources, holding that
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"[d]isparate tax treatment based on an affiliated group's geographic

location and corporate structure constitutes an impermissible burden on

interstate commerce." Id. at 566 (emphasis added). The taxpayers'

argument is misplaced. As the Department correctly asserts in its brief,

IBF's disqualification from the consolidated group is unrelated to any

actual disparate tax treatment based on geographic location, i.e., its

disqualification from the group was not solely because IBF was not

conducting business in Alabama. IBF was disqualified from the group

consisting of AFI, IBF, and the bank in tax return years 2019 and 2020

because it was not "the common parent," and it would be disqualified

regardless of whether it conducted business in Alabama.

Additionally, as the Department correctly notes in its brief on

appeal, the circuit court's interpretation of the filing test would result in

a similarly situated in-state registered bank-holding company failing the

filing test. An in-state registered bank-holding company that does not

conduct business in Alabama as a bank or similar entity or is not the

common parent of the consolidated group would not qualify as a financial

institution under the business test or the common-parent test of § 40-16-

1. Thus, a similarly situated in-state registered bank-holding company
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would fail to qualify as a financial institution and, accordingly, would fail

the filing test.

We also note that the taxpayers assert that, under the

Department's and the circuit court's interpretation of the filing test, the

privilege of filing a consolidated FIET return would be available only to

those groups in which each financial institution in the group directly

conducts business in Alabama. This is incorrect. The definition of

"financial institution" in § 40-16-1 allows entities to qualify as a financial

institution without conducting business in Alabama; namely, the entity

must be the common parent of a qualified consolidated group and be a

registered bank-holding company. Our holding that IBF is not a common

parent for the purpose of qualifying as a financial institution in a

consolidated FIET-return group comprising AFI, IBF, and the bank

should not be read as a requirement that all financial institutions seeking

to file a consolidated FIET return must do business in Alabama.

Having determined that the circuit court did not err in finding that

the taxpayers failed to satisfy the consolidated FIET-return filing

requirements in § 40-16-3 and that the circuit court's interpretation of

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the filing test did not violate the Commerce Clause, we affirm the circuit

court's judgment.8

AFFIRMED.

Moore, P.J., and Hanson, Fridy, and Bowden, JJ., concur.

8Having affirmed the circuit court's judgment concerning the FIET-

return group, we need not reach the taxpayers' argument concerning the
adjustment and allocation of their net operation losses.
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